Is IRA good source of mortgage cash?
Dear Dr. Don,
My husband is 66 years old and is thinking of withdrawing $160,000 from his IRA to pay off our mortgage. Are we responsible for taxes and penalties on this withdrawal?
-- Pat Paydown
The good news is that there's no penalty tax involved when a 66-year-old takes a distribution from his IRA account. In general, distributions from a traditional IRA are taxable in the year you receive them. IRS Publication 590, Individual Retirement Arrangements, has more information on the taxation of distributions from the account.
If you decide to take distributions to pay off the mortgage, you should get some professional tax advice on the timing of these distributions to manage the impact on your taxes.
You haven't asked for advice on whether I think it's the right financial move to take the money out to pay off the mortgage. While I think it's a great financial goal to have the mortgage paid off by retirement, it's not always the best decision to raid your retirement accounts to pay off the mortgage. If you're not sure, you should discuss the decision with a fee-only financial planner.
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